I appreciate the concept of a gold, or similar, standard.
Two problems I haven’t seen addressed:
- there isn’t enough of the stuff. Too many people would lose too much value to tolerate the switch.
- rate of gold supply increase does not match general wealth creation rate. Inflation or deflation ensues as GDP increases.
Correct.
Prices are relative determinations. When something is elevated to the role of money in the marketplace its value is determined by the participants on an individual case by case basis. There are 'enough' yen to price everything in the world, just as there are enough Federal Reserve notes. A currency denominated in gold weight would just as readily by priced by the market against all goods available.
Too many people would lose too much value to tolerate the switch.
Who? Those who get the loans of 'new money' first? Surely not those seeing the value of the dollar driven down by Bernanke's deliberate inflation of the money supply. Why do you care more about Goldman Sachs than the people who live on your block? They're losing too much now to continue with this system of institutionalized robbery in lieu of taxation.
- rate of gold supply increase does not match general wealth creation rate. Inflation or deflation ensues as GDP increases.
Changes in value (price) consequent to relative levels of production are how free market economies prioritize production. If the rate of production of two goods are different, then an increase of the money supply can't match them now anyway. This point you raise is actually irrelevant. In the event that production in general outpaced the production of gold specifically this would actually confer additional benefit upon savers, and automatically encourage even greater levels of capital formation to support even greater capital investment and increased productivity.
“Two problems I haven’t seen addressed:
- there isn’t enough of the stuff. Too many people would lose too much value to tolerate the switch.
- rate of gold supply increase does not match general wealth creation rate. Inflation or deflation ensues as GDP increases.”
Ten pounds is enough. All that matters is that a “dollar” equals “X” amount of gold. This fixed standard means that they do not steal your money by steadily devaluing the dollar. In this world, prices do not continually skyrocket, and a dollar has a value. The government cannot flood the market with fiat dollars to fund wars and welfare unless they want to be open about it and tax us.
Wealth creation rate? A gold standard economy simply does not need steady increases in the amount of gold. This aregument essentially pretends that a gold standard must ape the behavior of keynsian fiat money. There is simply no need for huge increases in “money supply”. If money is tied to a fixed standard and you never find another ounce, all that means is that a dollar will have buying power and deep intrinsic value. Maybe a house would still be 1500 dollars, instead of 100 times that price with dollars with 98% of their value stripped.
This is why the story of Abe lincoln running 15 miles or whatever to return 9 cents to someone meant. There was a time that a penny, dime or quarter had value. If we found no more gold forever, then maybe a dime would have the buying power of 10 dollars. But there is no need for “more gold” unless of course, you want to finance a welfare state, or a warfare state without raising appropriate taxes.
And it would be impossible to do things like provide europe with 7 trillion in “liquidity” if they had to find 7 trillion in gold, or raise it in taxes.
Accepting YOUR beliefs, why can’t the government print me up 50,000 so i can pay off my truck? They just printed two times the GNP of China to give to Europe. The real question is why is counterfeiting a crime anymore?
“Two problems I haven’t seen addressed:
- there isn’t enough of the stuff. Too many people would lose too much value to tolerate the switch.
- rate of gold supply increase does not match general wealth creation rate. Inflation or deflation ensues as GDP increases.”
Ten pounds is enough. All that matters is that a “dollar” equals “X” amount of gold. This fixed standard means that they do not steal your money by steadily devaluing the dollar. In this world, prices do not continually skyrocket, and a dollar has a value. The government cannot flood the market with fiat dollars to fund wars and welfare unless they want to be open about it and tax us.
Wealth creation rate? A gold standard economy simply does not need steady increases in the amount of gold. This aregument essentially pretends that a gold standard must ape the behavior of keynsian fiat money. There is simply no need for huge increases in “money supply”. If money is tied to a fixed standard and you never find another ounce, all that means is that a dollar will have buying power and deep intrinsic value. Maybe a house would still be 1500 dollars, instead of 100 times that price with dollars with 98% of their value stripped.
This is why the story of Abe lincoln running 15 miles or whatever to return 9 cents to someone meant. There was a time that a penny, dime or quarter had value. If we found no more gold forever, then maybe a dime would have the buying power of 10 dollars. But there is no need for “more gold” unless of course, you want to finance a welfare state, or a warfare state without raising appropriate taxes.
And it would be impossible to do things like provide europe with 7 trillion in “liquidity” if they had to find 7 trillion in gold, or raise it in taxes.
Accepting YOUR beliefs, why can’t the government print me up 50,000 so i can pay off my truck? They just printed two times the GNP of China to give to Europe. The real question is why is counterfeiting a crime anymore?
.....there isn’t enough of the stuff......
You look at the valuation backward. There is always enough. Gold is not valued in $$’s, $$’s are valued in gold.
Bingo, there’s not enough of the stuff, and the supply doesn’t increase to match wealth creation because gold isn’t wealth (or wealth creation), it’s just a commodity. To have a so-called hard money that does, we should use pork bellies — more come along all the time, and the ones which are around have an expiration date. :’)
http://www.galmarley.com/framesets/fs_commodity_essentials_faqs.htm
Gold : prices, facts, figures & research
Commodity Numbers FAQs
[snip] How much gold is there?
In the world there are currently somewhere between 120,000 and 140,000 tonnes of gold ‘above ground’. To visualise this imagine a single solid gold cube with edges of about 19 metres (about three metres short of the length of a tennis court). That’s all that has ever been produced.
Divided amongst the population of the world there are about 23 grams per person, about 1.2 cubic centimetres each. [/snip]
Awright, so brief late night postings carry inadequate detail. Let me expand on my points.
There isn’t enough of the stuff.
The shift from fiat to gold would skyrocket the value of gold overnight, to something like $10,000/oz. Great if you have it, awful if you don’t. Being on a gold standard would be great; getting there would cause wars.
One of the compelling historical reasons for gold as currency is the convenient value-to-volume ratio: a lot of value in a small package, but not too much value. Platinum has better value density, but platinum coinage is avoided ‘cuz it’s too valuable per volume. Going onto a gold standard with the limited supply we have would do similar, putting too much value in too little space.
Supply growth vs. GDP
The gold supply doesn’t grow on par with wealth creation growth rate. Ergo, we’d be subject to perpetual deflation. As more people produce more wealth, the ratio of gold-to-value decreases, prices drop, and familiar results ensue. Much can be said in favor of a currency which maintains prices; shifting prices introduce an annoying (if not damaging) complexity.
Gold is, of course a physical limited commodity. I’m not sure pinning a nation’s currency on a particular commodity is as much an improvement over fiat currency as we’d want, given the complex interplay of commodities and other goods/services. I keep toying with the idea of how to quantify value outright, some unitless number not subject to political declarations (fiat currency) nor artificial linkages (gold standard). With the ability to mine world data for prices, there should be a way to identify total relative values of all things to all things - akin to the old line that a good handgun is always worth an ounce of gold, but on a grand holistic scale.
Pondering this, I’m better understanding an underlying point: those who have gold would benefit from a transition to gold, those who don’t would suffer. Being more of the latter than the former, don’t see it happening.